With Friends Like These… Midwestern Democrats Fight Climate Policy

On August 6th, ten Midwestern Democratic Senators sent a letter to President Obama that began the hardball phase of creating climate policy as it moves from the House’s Waxman-Markey bill to Senate deliberations in the fall. In this letter, the Senators insist that climate change legislation must protect U.S. manufacturers from unfair foreign competition. They do not want U.S. manufacturers to face competition from foreign industries that might not have to pay the cost of compliance with new climate rules.

The letter writers are Senators Sherrod Brown (D-Ohio), Debbie Stabenow (D-Mich), Russell D. Feingold (D-Wisc.), Carl Levin (D-Mich.), Evan Bayh (D-Ind.), Robert P. Casey (D-Pa.), Robert C. Byrd (D-W.V.), Arlen Specter (D-Pa.), John D. Rockefeller IV (D-W.V), and Al Franken (D-Minn). In the letter, these Senators express:“… strong support for the inclusion of a package of initiatives, including a border adjustment mechanism, to ensure the viability and effectiveness of any climate change policy crafted by Congress… As Congress considers energy and climate legislation, it is important that such a bill include provisions to maintain a level playing field for American manufacturing…Measures to ensure that U.S. manufacturers do not bear the brunt of our climate change policy could include: short-term transition assistance in the form of rebates provided to energy-intensive and trade-exposed industries; negotiating objectives requiring any international agreement to address manufacturing competiveness; effective means to measure, monitor, verify, and hold countries accountable for emissions reductions; and policies that promote investments in energy efficient and clean technology manufacturing and help the sector retool for the clean energy economy.”

This is a key issue, and if not addressed it has the potential to split the Democratic Party in two and to eliminate the possibility of climate regulation both here and throughout the world. The underlying cause of this issue is the uneven pattern of economic development worldwide. The developed nations built their economies on fossil fuels and never had to worry about greenhouse gases. Nations just now building their economies, such as India and China, want the same “right to develop” that the world’s wealthy nations had back in the 20th century. The perspective of American manufacturers is that if they have to comply with these new regulations, then everyone else should as well. They assume that compliance with greenhouse gas regulations will raise the price of their goods and services. They propose tariffs as a method of equalizing prices and “leveling the playing field.” Tariffs, of course, interrupt the free trade of goods, restrain competition and ultimately reduce wealth.

It seems to me that the solution is not to raise the cost of imported goods, but rather to use the tax code and innovative federally funded research to lower the cost of compliance with new global warming rules. We should not automatically assume that cleaner manufacturing is inherently more expensive. While this tends to be true when we retrofit old factories with pollution control equipment, we can encourage the construction of new facilities that have a smaller carbon footprint from the start. But where will the money come from for this?

One source might be the funds raised by the auction of emission allowances under Waxman-Markey. A second source requires that we break the taboo on new taxes and levy a new tax on fossil fuels. This money could then fund a tax deduction or credit for investments in technology that reduce greenhouse gas emissions. In addition, we can reduce emissions from Midwestern manufacturers by targeting new renewable energy sources for manufacturing. We can also fund research on carbon capture and storage that will enable us to burn fossil fuels without impacting climate systems.

Rather than wasting time protecting old and dirty factories, we should fund the research needed to revitalize American manufacturing. We should use the tax code to encourage investment in manufacturing facilities that can compete with the foreign factories that rely on cheaper labor and less stringent environmental laws. We should work to build lower-cost, non-fossil fuel energy sources and more automated factories engineered to reduce waste and emissions.

It is disappointing, but not surprising, to see these Senators “rounding up the usual suspects.” It is really time to break this depressing cycle of rust belt protectionism and anti-environmentalism. One look at Detroit tells you how successful this strategy has been. If we are going to get the developing world to build their industries according to green principles, the United States must lead by example. We need to develop green technology, implement it at home and provide incentives for adopting it in the developing world.

This is not an argument for allowing our industrial base to disintegrate. We need to stimulate private investment in that base and directly fund the research and development required to build a competitive but sustainable economy. While this letter to the President is simply an opening gambit in the intense bargaining process that awaits us this fall, it is both pathetic and short-sighted. These folks know better, and rather than providing vision and forward-looking leadership, they have decided to protect their flanks. It is high time that we focus on the fundamentals–which even these senators acknowledged when they wrote: “Climate change is a reality and the world cannot afford inaction.” At least they got that part right.